Tag: bank balance, bank overdraft, meaning, and bank reconciliation statement

Questions Related to bank balance, bank overdraft, meaning, and bank reconciliation statement

While preparing a Bank Reconciliation Statement, if you start with a debit balance as per the cash book, then cheques issued but not presented within the period are _____________.

commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

  1. to be added

  2. to be deducted

  3. not required to be adjusted

  4. none of these

Show answer
Correct Option: A
Explanation:

Cheques issued represent payments made. So when cheques are issued and presented for payment it would lead to decrease in the bank balance as per both  pass book and cash book. But, if cheques are not presented within the period then the bank would not consider those cheques and the bank balance as per pass book would be higher than bank balance as per cash book. 

So, while preparing a bank reconciliation statement, starting with debit balance as per the cash book  if cheques are issued but not presented within the period then they are to be added to reach the balance as per pass book.

Which of the following items appearing on a bank reconciliation would require an adjusting entry?

commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

  1. Outstanding cheques

  2. Deposits in transit

  3. Interest on balance

  4. Adjusted cash balance

Show answer
Correct Option: C
Explanation:

Interest on balance would require an adjusting entry if appearing on a bank reconciliation, because outstanding cheques and deposits in transit are merely time differences which would get cleared automatically and adjusted cash balance is already taken care for the errors. Whereas interest on balance would be cleared only when an entry for the same is passed in the cash book.

The difference in the balances of the cash book and the pass book can be because of _______________.

commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

  1. error in recording the entries either in the cash book or pass book.

  2. same entry recorded in either of the book earlier and in the other book later

  3. debit balance of cash book is the credit balance of pass book.

  4. both (a) and (b)

Show answer
Correct Option: D
Explanation:

If an entry is recorded in either the cash book or the pass book first and not updated in either of them on a later date, it may lead to a difference between them both.

Also, if there is no consistency or an erroneous recording of transactions  in recording entries in either of the books, it may lead to  a difference between the two.
A debit position as per bank pass book means credit position as per cash book and vice versa.

Interest charged by the bank will be deducted when the overdraft as per pass book is the starting point for preparing the bank reconciliation statement to arrive at the balance as per cash book at the end.

commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

True. Interest charged by bank is an expense for the business. It is credited in the cash book when it is paid by the business, thereby reducing the balance in the cash book (bank column). So, when overdraft as per pass book is the starting point for preparing bank reconciliation statement, interest charged by bank will be deducted to arrive at the balance as per cash book at the end.

A debit balance in the depositor's cash book will be shown as ___________.

commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

  1. a debit balance in the bank statement

  2. a credit balance in the bank statement

  3. an overdrawn balance in the bank statement

  4. none of the above

Show answer
Correct Option: B
Explanation:

A bank statement is an extract from bank ledger and hence it is to be read from bank's view point which shows a credit balance in the pass book.

It is the position of customer in bank records. So if a debit balance is shown in depositor's cash book an opposite position will be shown in the bank books i.e credit balance.

A pass book is a copy of _________________ .

commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

  1. a customers account in the banks books

  2. cash book relating to discount column

  3. cash book relating to cash column

  4. firms receipts and payments

Show answer
Correct Option: A
Explanation:

A passbook is a copy of customer's account in the bank's books. it is prepared by the bank and shows all the transactions of a customer like deposits, withdrawals, interest payment / receipt etc. with the bank from the point of view of the bank.

________ is a copy of the clients account in the bank's ledger.

commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

  1. Cash book

  2. Pass book

  3. Cheque book

  4. Pay-in-slip book

Show answer
Correct Option: B
Explanation:

The pass book is just a copy of the account statement as maintained by the bank. So if the pass book reflects a debit balance it means that the account is in the nature of a debtor/receivable for the bank and  it would be the opposite for the account holder. From his point of view he would be having a negative balance in his account and hence a liability/payable.

Which of the following is/are cause of difference of balance between cash book & the pass book?

commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

  1. Errors committed in recording transactions by the firm.

  2. Errors committed in recording transactions by the bank.

  3. Natural calamities.

  4. Both (A) & (B).

Show answer
Correct Option: D
Explanation:

Banks do commit errors that can cause a difference in balance as per the cash book and the pass book.

Only to reconcile these balances does the businessmen prepare Bank reconciliation.
Majority of the time, there are chances that the fraud and error may be committed by the firm but not always.
Banks may commit errors like printing errors or charging an incorrect bank expense, etc.

A bank statement is a copy of ___________.

commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

  1. a customer's account in the bank's book

  2. bank column of the cash book

  3. cash column of the cash book

  4. none of the above

Show answer
Correct Option: A
Explanation:

An extract from bank ledger is a bank statement.

It is customer's copy and shall reflect all the transactions during the period including the bank charges, interest etc.
Even if no transactions have been made, a bank statement shall be processed to show the balance as on date. 

Interest charged by the bank will be deducted, when the overdraft as per the cash book is made the starting point for making, the bank reconciliation statement.

commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

  1. True

  2. False

Show answer
Correct Option: B
Explanation:

False. Interest charged by bank will be added when the overdraft as per cash book is taken as starting point for preparing the bank reconciliation statement. Interest charged by bank is an expense for the business which reduces the balance as per pass book. The business has not recorded this transaction in the cash book yet as it  has not received any information about it. So, to arrive at the balance as per pass book, it is added to the overdraft balance as per cash book.